Sri. Sardar Iqbal Singh, Secunderabad vs Assessee

2. Assessee has raised five grounds. Ground Nos. 1 & 5 are general in nature, hence, do not require any specific adjudication.

3. Ground No. 2 is in relation to addition of Rs. 21,50,000 u/s 68 of the Act made by AO and confirmed by ld. CIT(A).

4. Briefly the facts relating to the issue in dispute are, assessee an individual is engaged in the business of manufacture and selling of aluminum tins. For the AY under consideration, assessee filed his return of income on 30//09/2009 declaring total income of Rs. 1,06,76,176. During the assessment proceeding, AO having noticed 2 ITA No. 349/Hyd/2014 Sri Sardar Iqbal Singh

that assessee has received unsecured loan of Rs. 21,50,000 from his son Sri Ankit Singh, called upon assessee to furnish the bank statement, confirmation letter, IT particulars of Sri Ankit Singh to prove the loan transaction. After verifying the details submitted by assessee, AO found that Sri Ankit Singh was in receipt of Rs. 5,000 per month as interest income. However, huge transactions were carried out through his bank account. When assessee was asked to furnish the sources for deposits made in the bank account of Sri Ankit Singh, assessee submitted that Sri Ankit Singh is not assessee of the department. It was further stated that an amount of Rs. 21,50,000 shown as unsecured loan is actually refund of an amount advanced to him by bank transfer on various dates. AO, however, observed that bank statement of Shri Ankit Singh does not support the claim of assessee. He further noted that, at the relevant time, Sri Ankit Singh was a minor. AO observed that Rs. 20 lakh was deposited in the bank account of Sri Ankit Singh on 12/06/2008, 16/06/2008 and 18/06/2008, but source of which remained unexplained. AO finally held that as no valid explanation to explain the deposits made in the account of Sri Ankit Singh was submitted by assessee, genuineness of the amount of Rs. 21,50,000 received from Sri Ankit Singh also remained unproved. Accordingly, AO treated the said amount as unexplained credit and added it to the income of assessee for the impugned AY. Being aggrieved of such addition, assessee preferred an appeal before ld. CIT(A) Ld. CIT(A) also confirmed the addition by concurring with the view expressed by AO.

5. Ld. AR submitted before us that both the AO as well as ld. CIT(A) has not appreciated the facts correctly. Ld. AR submitted, the unsecured loan is nothing but actually assessee's money, which was transferred to his minor son's account through banking channel and again received back through banking channel. Further 3 ITA No. 349/Hyd/2014 Sri Sardar Iqbal Singh

explaining, ld. AR submitted that an amount of Rs. 50,000 was earlier transferred from assessee's bank account No. 06211000012121 on 17/05/08 to his son's bank account numbered as 06211000023345 in HDFC Bank account and the amount was again returned back to assessee. In so far as the balance amount of Rs. 20,00,000 is concerned, ld. AR submitted that this amount was transferred from the bank account of M/s Mirra Packaging, a proprietary concern of assessee to his son's account and again transferred back to assessee from the bank account of Sri Ankit Singh. Thus, it was submitted by ld. AR that the source of unsecured loan and the deposits in the bank account of Sri Ankit Singh was fully explained. Ld. AR further fairly submitted that before AO and ld. CIT(A) assessee could not reconcile transfer entries by producing the bank account of M/s Mirra Packaging, which was now submitted before the Tribunal.

6. The ld. DR, on the other hand, however, submitted, as necessary evidence to explain the unsecured loan and the deposits in the bank account of Sri Ankit Singh, who was not only a minor, but, is also not an income-tax assessee at the relevant point of time was not produced before the departmental authorities, AO as well as ld. CIT(A) had no other option, but, to treat the credit as unexplained.

7. We have considered the submissions of the parties and perused the materials on record as well as orders of revenue authorities. As can be culled out from the assessment order as well as the order passed by ld. CIT(A), addition of Rs. 21,50,000 has been made by treating it as unexplained credit, mainly, on the ground that assessee has failed to explain the source of deposits in the bank account of Sri Ankit Singh and as a consequence unsecured loan also remained unexplained. However, on a perusal 4 ITA No. 349/Hyd/2014 Sri Sardar Iqbal Singh

of assessee's bank account numbered as 06211000012121, it appears on 17/05/08, assessee has transferred an amount of Rs. 50,000 to the account of Sri Ankit Singh bearing No. 06211000023345. Similarly, from the bank account of M/s Mirra Packaging, which is stated to be a proprietary concern of assessee, amounts of Rs. 5 lakh each were transferred to the savings bank account bearing No. 06211000023345 of Sri Ankit Singh on 02/06/08 and 16/06/08. Similarly, an amount of Rs. 10 lakh was transferred from the account of M/s Mirra Packaging to the aforesaid saving's bank account of Sri Ankit Singh on 18/06/08. On a perusal of the bank statement relating to Sri Ankit Singh and M/s Mirra Packaging produced before us, assessee's statement, to certain extent appears to be correct. However, it is to be noted that assessee has not explained the source of deposits in the account of Shri Ankit Singh and subsequent transfer to assessee by producing relevant bank statements as a result of which addition was made by AO treating the unsecured loan as unexplained. Therefore, considering the fact that assessee before us has produced relevant bank statements and explained the source of deposits in the bank account of Shri Ankit Singh and subsequent transfer to assessee's bank account, we are inclined to remit the matter back to the file of AO for verifying this aspect after examining the relevant bank accounts and decide the issue after due opportunity of being heard to assessee. We make it clear if on verification of the bank statements, assessee's claim is found to be correct, then, no addition can be made on this count. This ground is considered to be allowed for statistical purposes.

8. A common issue arising from ground Nos. 3 & 4 relates to addition of an amount of Rs. 45 lakh as deemed dividend u/s 2(22)(e) of the Act.

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9. Briefly the facts relating to this issue are, during assessment proceeding, AO noticed that assessee is also a director in M/s Euro Construction Pvt. Ltd. and during the year under consideration, assessee has received a total amount of Rs. 45 lakhs on different dates as loan/advance from the said company. AO further observed that on examining the receipts and payments account submitted by assessee, it was found that loan taken from the company was utilized for assessee's personal purposes like investing in M/s Mirra Packaging and others. He further found that as assessee is holding shares of 95.249% and the company had also accumulated profits during the year, the amount given as loan/advance to assessee have to be treated as deemed dividend u/s 2(22)(e) of the Act. Accordingly, he issued a notice to assessee to explain. In response to the show cause notice, it was submitted by assessee that the amount received from the company was not in the nature of loan/advance, but, is actually towards purchase of property in the name of the company which did not materialize. AO, however, disbelieved the explanation of assessee in absence of supporting evidence. AO observed that as all the conditions of section 2(22)(e) are satisfied, the amount of Rs. 45 lakh received by assessee from M/s Euro Construction Pvt. Ltd. has to be treated as deemed dividend u/s 2(22)(e) and accordingly made the addition. Though, assessee challenged the addition made in appeal before ld. CIT(A), but, ld. CIT(A) also confirmed the addition made by accepting the view expressed by AO.

10. Ld. AR, reiterating the submissions made before the departmental authorities, submitted before us that the amount received from the company is not in the nature of loan/advance, but, for the purpose of investing in properties on behalf of the company. When the deal did not materialize, assessee refunded back the money to company. Therefore, the amount received not 6 ITA No. 349/Hyd/2014 Sri Sardar Iqbal Singh

being in the nature of loan/advance, provisions of section 2(22)(e) is not attracted. Ld. AR submitted that this is only a running account with the company. Further, ld. AR referring to the account copy of assessee in the books of account of the company as well as company's account in the books of assessee, submitted that if at all the amount received from the company is to be treated as deemed dividend, then, repayments made by assessee also has to be set off.

11. The ld. DR, on the other hand, submitted that not only before AO, but, also before ld. CIT(A), assessee could not substantiate its claim that the amount received from the company was towards purchase of land on behalf of the company. Therefore, assessee's claim that the amount received is not in the nature of loan/advance cannot be accepted. It was submitted, as the amount received satisfied all the conditions of section 2(22)(e), addition made was justified.

12. We have considered the submissions of the parties as well as perused the materials on record and the orders of revenue authorities. There is no dispute to the fact that assessee on different dates during the relevant FY has received an amount of Rs. 45 lakh from M/s Euro Constructions Pvt. Ltd. wherein assessee is the Managing Director and majority shareholder. It is also not disputed that the said company is a company wherein public are not substantially interested. It is also a fact on record that during the year the company had accumulated profits. Therefore, all the conditions of section 2(22)(e) are satisfied. Though, assessee has claimed that the amount received was not in the nature of loan/advance, but, towards purchase of land in the name of company, however, assessee has not produced even a single evidence to justify the aforesaid claim. No specific evidence 7 ITA No. 349/Hyd/2014 Sri Sardar Iqbal Singh

to show that any agreement was entered into for purchase of property or any advance was paid has been brought on record by assessee. In these circumstances, assessee's claim that the amount received was not in the nature of loan/advance cannot be accepted. However, as can be seen from assessee's account in the books of M/s Euro Construction Pvt. Ltd. there is a credit balance of Rs. 7,55,896.50 in February, 2009. Therefore, assessee deserves to get credit for the said amount by setting it off against total advance of Rs. 45 lakh. In the aforesaid view of the matter, we direct AO to reduce the amount of Rs. 7,55,896.50 from the total loan/advance of Rs. 45 lakh and treat the balance amount as deemed dividend u/s 2(22)(e) of the Act. These grounds are partly allowed.

13. In the result, appeal of assessee is partly allowed.

Pronounced in the open court on 18/02/2015.

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 18 th February, 2015 kv

Copy to:-

1) Sri Sardar Iqbal Singh C/o K. Narender, C.A., Sudhakar & Co., II Floor, 5-2-134, R.P. Road, Secunderabad - 500 003.

2) JCIT, Range - 8, Hyderabad

3) CIT(A)-III, Hyderabad

4) CIT-II, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.

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